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1301.0 - Year Book Australia, 2007  
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Contents >> International Accounts and Trade >> International accounts

INTERNATIONAL ACCOUNTS

International accounts cover the closely related and integrated balance of payments and international investment position statistics. Diagram 30.1 presents the broad structure and relationship of these statistics.

Australia's balance of payments provides a statistical statement that systematically summarises the economic transactions between residents of Australia and residents of other countries. Residents, who may be people or businesses, need not be Australian nationals. Transactions cover the provision (changes in ownership) of goods, services and income, financial claims on and liabilities to the rest of the world, and transfers without anything provided in exchange (such as gifts).

Australia's international investment position is a balance sheet of the stock of foreign financial assets and liabilities of Australian residents. International investment statistics integrate the balance sheet positions at two points in time with information on increases and decreases in the levels of these assets and liabilities as a result of the changes due to transactions (investment flows, including reinvestment of earnings) as shown in the financial account of the balance of payments, together with the other changes that affect either the value of the stock (price, exchange rate) or the volume of the stock (other adjustments) of financial assets and liabilities.

30.1 RELATIONSHIP BETWEEN THE BALANCE OF PAYMENTS AND INTERNATIONAL INVESTMENT POSITION STATEMENTS
30.1 RELATIONSHIP BETWEEN THE BALANCE OF PAYMENTS AND INTERNATIONAL INVESTMENT POSITION STATEMENTS 30.1 RELATIONSHIP BETWEEN THE BALANCE OF PAYMENTS AND INTERNATIONAL INVESTMENT POSITION STATEMENTS


CONCEPTUAL FRAMEWORK

Australia's international accounts statistics, which cover both the balance of payments and the international investment position, are compiled in accordance with international statistical standards as defined in the fifth edition of the International Monetary Fund's Balance of Payments Manual (BPM5). The concepts of residency, transactions, valuation and time of recording are common to the balance of payments and international investment position statistics.

The balance of payments accounts, which present systematically the economic transactions between Australia and the rest of the world, incorporate four types of economic transactions. The first involves the provision of real resources, that is, transactions in goods, services and income. The second involves the provision of financial resources, that is, financial assets and liabilities. The third covers those one-sided transactions of a current nature (described as current transfers) that are offsets to transactions in current real or financial resources undertaken without an exchange. Current resources are not associated with, nor do they finance, fixed assets. For example, famine relief, whether in cash or in kind, would have its offset in current transfers. The fourth type is capital transfers that offset transactions undertaken, without exchange, in fixed assets or in their financing. For example, the provision of foreign aid funds to build roads is classified as a capital transfer.

The first and third of these types of transactions make up the current account, while the second type makes up the financial account. The fourth type (capital transfers), together with a minor item for the acquisition and disposal of non-produced, non-financial assets (such as patents), make up the capital account.

The double entry accounting system is used for recording balance of payments transactions. Under the conventions of the system, the compiling economy records credit entries for (a) exports of goods, provision of services, provision of the factors of production to another economy and (b) financial items reflecting a reduction in the economy's external assets or an increase in external liabilities. Conversely, the compiling economy records debit entries for (a) imports of goods, acquisition of services, use of production factors provided by another economy and (b) financial items reflecting an increase in assets or a decrease in liabilities. In other words, for real or financial assets, a positive figure (credit) indicates a decrease in holdings, and a negative figure (debit) indicates an increase. For liabilities in the form of financial instruments, the rule is reversed; a positive figure indicates an increase and a negative one, a decrease.

Transactions in a double entry accounting system are reflected in pairs of equal credit and debit entries. For example, an export transaction for which payment is received through the banking system involves a credit entry for providing the good to a non-resident and a debit entry for being provided with foreign exchange assets as payment for the export. Any entries for which there is no quid pro quo are matched by special offsetting entries. Such offsetting entries are made in the categories 'current transfers' (when offsetting the provision of current resources such as food for famine relief) and 'capital transfers' (when offsetting the provision of capital resources such as development aid to build a new dam).

In principle, the net sum of all credit and debit entries is zero. In practice, some transactions are not measured accurately (errors), while others are not measured at all (omissions). Equality between the sums of the credit and debit entries is then brought about by the inclusion of a 'net errors and omissions' item which balances the accounts.

Transactions should be valued in the balance of payments at market prices. However, for practical reasons, transactions are generally valued in the statistics at transaction prices as this basis provides the closest practical approximation to the market price principle.

Transactions recorded in the balance of payments should be recorded at the time of change of ownership. For current account transactions, this occurs when ownership of goods changes, or services are provided. Investment income is recorded on a full accrual basis, that is, when it is earned. Reinvested earnings are calculated for the earnings of the period of account, using current replacement cost estimates of depreciation and excluding holding gains and losses. Current and capital transfers should be recorded when the goods, services, cash, etc., to which they are offsets, change ownership. Those transfers, such as taxes and fines, which are imposed by one party on another, should ideally be recorded at the time of occurrence of the underlying transactions or other flows or events that give rise to the liability to pay. For financial account transactions, the time of recording is at the change of ownership of the financial claims, which by convention is the time at which transactions are entered in the books of the transactors.

In practice, the nature of the available data sources is such that the time of recording of transactions will often differ from the time of change of ownership. Where practical, timing adjustments are made for transactions to ensure that they are recorded in the time period in which change of ownership occurs.

International investment position statistics are the balance sheet of the levels (stock) of Australia's foreign financial assets and liabilities. The investment position at the end of a specific period reflects the financial transactions (investment flows) and other changes (non-transaction changes) due to exchange rate effects, other price effects and changes in the volume of these assets and liabilities, all of which affect the level of assets and liabilities, that occurred during the period.

While the international investment position statistics form an integral part of Australia's international accounts (diagram 30.1), they are also useful in their own right, for example, in determining the impact of foreign investment policies and the level of Australia's foreign assets and liabilities, including foreign debt. They are also useful when analysing the behaviour of financial markets.

As with the balance of payments, market price is the principal method of valuation in international investment position statistics, and financial assets and liabilities are recognised on a change of ownership basis, that is, at the time when the foreign financial asset or liability is acquired, sold, repaid or otherwise disposed of. By convention, this is generally taken to be the time at which the event is recorded in the books.

CLASSIFICATIONS

In the following tables, estimates are presented of the current, capital and financial accounts of Australia's balance of payments. Current and capital account transactions are generally recorded gross. This means that, for each item in the current and capital accounts, the credit entries are recorded separately from the debit entries. For example, goods credits are shown separately from goods debits. For each item in the financial account, however, debit and credit transactions are combined to produce a single result for the item which may be either a net credit or a net debit. For example, in a given period, non-resident purchases of shares issued by companies in Australia (credit) are netted against sales of Australian shares to residents by non-residents (debit) and the net result is recorded in the financial account as either a net credit or a net debit.

The current account records transactions between Australian residents and non-residents in goods, services, income and current transfers. Goods are classified into five main components: general merchandise; goods for processing; goods procured in ports by carriers; repairs on goods; and non-monetary gold. Changes of ownership from residents to non-residents are recorded as credits (also referred to as exports), and changes from non-residents to residents are recorded as debits (also referred to as imports). Services, comprising eleven primary components, cover services provided by Australian residents to non-residents (credits) and by non-residents to residents (debits), together with transactions in a few types of goods (e.g. goods purchased by travellers). Income, comprising investment income (e.g. dividends and interest) and compensation of employees (e.g. wages), covers income earned by Australian residents from non-residents (credits) or earned by non-residents from residents (debits). Current transfers cover the offsetting entries required when resources are provided, without something of economic value being received in return. When non-residents provide something to Australian residents, offsetting credits are required; when residents provide resources to non-residents, offsetting debits are required. General government transfers (e.g. official foreign aid) are distinguished from transfers by other sectors.

The capital account covers capital transfers (such as migrants' funds), with general government distinguished from other sectors, and the acquisition/disposal of non-produced, non-financial assets.

The financial account shows transactions in foreign financial assets and liabilities. The primary split is by functional type of capital, (direct investment, portfolio investment, financial derivatives, other investment and reserve assets) further split into assets and liabilities where appropriate. Within the asset and liability categories, details are presented of instruments of investment and resident sectors (for other than direct investment), and in some cases the contractual maturity of the instruments.

The primary distinction used in international investment position statistics is between assets and liabilities. Assets primarily represent Australian investment abroad, and liabilities primarily represent foreign investment in Australia. The difference between the two represents the net international investment position (graph 30.8 and table 30.9). Australian investment abroad refers to the stock of foreign financial assets owned by Australian residents, after netting off any debt liabilities of Australian direct investors to their direct investment enterprises abroad. Conversely, foreign investment in Australia refers to the stock of financial assets in Australia owned by non-residents, after netting off any debt claims of Australian direct investment enterprises on their foreign direct investors. The breakdown below this asset/liability presentation is by functional type of capital (table 30.11).

While many types of instruments of investment can be identified, similar instruments are combined for analytical reasons and ease of reporting. Some of those instruments are:

Equity capital - which includes ordinary and participating preference shares, units in trusts and net equity in branches

Reinvestment of earnings of direct investors - which refers to income retained within the enterprise from after-tax profits that is attributable to direct investors
Debt securities - which include longer term, generally tradeable security instruments such as bonds and debentures, with a contractual maturity of more than one year after issue, together with money market instruments (e.g. bills, commercial finance paper, negotiable certificates of deposit) with a contractual maturity of one year or less
Trade credits - which cover the direct extension of credit by suppliers and buyers for goods and services, including advances for work in progress or to be undertaken
Loans - which cover the direct lending of funds either, without a security evidencing the transaction, or with non-negotiable documentation - they include financial leases
Deposits - which comprise both transferable and other deposits
Other assets and liabilities - which consist of miscellaneous accounts in respect of interest, dividends, etc.

STATISTICAL OVERVIEW

The balance on current account for 2005-06 was a deficit of $54.4 billion (b), a decrease of $2.9b (5%) on the previous year (table 30.2). The net income deficit rose $5.0b (15%) with an increase in income debits of $9.0b (17%) partly offset by an increase in income credits of $4.0b (19%). The deficit on goods and services was $16.5b, a decrease of $8.0b (33%) on the 2004-05 deficit of $24.5b. The net goods deficit fell by $7.2b (31%) and the net services deficit fell by $0.8b (54%) on the previous year.

The surplus on capital account decreased by $0.1b (7%) to $1.1b in 2005-06.


The balance on financial account recorded a net inflow of $53.4b, down $0.1b on the previous year. Direct investment recorded a net outflow of $7.6b, a $52.4b turnaround on the net inflow of $44.8b in 2004-05. Comprising the net outflow was a turnaround in Australian direct investment abroad of $80.5b to $26.3b partially offset by a turnaround of $28.1b to an inflow of direct investment into Australia. The net inflow on portfolio investment increased $60.7b, while other investment recorded a fall of $7.5b to record a net inflow of $2.7b in 2005-06. Reserve assets fell $2.5b, while financial derivatives recorded a turnaround of $3.4b to an outflow of $1.1b in 2005-06.


30.2 BALANCE OF PAYMENTS, Summary

2001-02
2002-03
2003-04
2004-05
2005-06
$m
$m
$m
$m
$m

Current account
-19,486
-39,883
-46,828
-57,355
-54,420
Goods and services
198
-17,479
-23,030
-24,491
-16,516
Credits
154,778
149,691
144,676
164,390
192,149
Debits
-154,580
-167,170
-167,706
-188,881
-208,665
Goods
-992
-18,478
-23,522
-22,967
-15,813
Credits
120,950
115,800
109,504
127,903
153,946
Debits
-121,942
-134,278
-133,026
-150,870
-169,759
Services
1,190
999
492
-1,524
-703
Credits
33,828
33,891
35,172
36,487
38,203
Debits
-32,638
-32,892
-34,680
-38,011
-38,906
Income
-19,667
-22,190
-23,529
-32,444
-37,467
Credits
15,586
15,739
16,993
20,981
24,960
Debits
-35,253
-37,929
-40,522
-53,425
-62,427
Current transfers
-17
-214
-269
-420
-437
Credits
4,280
4,233
4,273
4,269
4,273
Debits
-4,297
-4,447
-4,542
-4,689
-4,710
Capital and financial account
20,165
38,460
45,878
54,730
54,552
Capital account
1,016
991
1,095
1,212
1,132
Capital transfers
1,186
1,103
1,167
1,141
1,136
Credits
2,543
2,404
2,571
2,674
2,648
Debits
-1,357
-1,301
-1,404
-1,533
-1,512
Net acquisition/disposal of non-produced, non-financial assets
-170
-112
-72
71
-4
Financial account
19,149
37,469
44,783
53,518
53,420
Direct investment
1,336
10,739
-15,978
44,774
-7,641
Abroad
-21,775
-9,636
-25,828
54,230
-26,288
In Australia
23,111
20,375
9,850
-9,456
18,647
Portfolio investment
8,944
17,498
81,028
4,418
65,111
Financial derivatives
204
-1,036
-1,097
2,261
-1,128
Other investment
7,888
15,888
-14,043
10,188
2,683
Reserve assets
777
-5,620
-5,127
-8,123
-5,605
Net errors and omissions
-679
1,423
950
2,625
-132

Source: Balance of Payments and International Investment Position, Australia (5302.0).


Graph 30.3 shows the differing influences of the trade balance and the net income deficit on the balance on current account. The net income deficit rose from $17.2b in 1990-91 to $37.5b in 2005-06. The underlying level of net income drives the level and direction of the current account deficit, as Australia continues to service its external liabilities. The trade deficit moved from a deficit of $0.7b in 1990-91 to a deficit of $16.5b in 2005-06 but fluctuated quite significantly over this period.

30.3 BALANCE ON CURRENT ACCOUNT COMPARED TO NET INCOME 30.3 BALANCE ON CURRENT ACCOUNT COMPARED TO NET INCOME


Table 30.4 describes the annual levels of Australia's official reserve assets and both the end of year and period average exchange rates for the major currencies, special drawing rights, and the trade weighted index.


30.4 RESERVE ASSETS AND EXCHANGE RATES

2001-02
2002-03
2003-04
2004-05
2005-06

RESERVE ASSETS(a) ($m)

Total reserve assets
-37,435
-40,760
-50,342
-56,170
-63,815
Monetary gold
-1,445
-1,329
-1,473
-1,468
-2,117
Special drawing rights
-216
-226
-256
-251
-267
Reserve position in IMF
-2,992
-3,185
-2,497
-1,734
-796
Foreign exchange
-32,782
-36,020
-46,117
-52,717
-60,636
Currency and deposits
-11,761
-10,254
-23,420
-32,464
-32,492
Securities
-21,137
-25,758
-22,695
-20,222
-28,137
Financial derivatives (net)
116
-8
-2
-31
-7

EXCHANGE RATES - UNITS OF FOREIGN CURRENCY PER A$

End of period(a)
United States dollar
0.5648
0.6674
0.6889
0.7637
0.7433
United Kingdom pound sterling
0.3700
0.4038
0.3815
0.4224
0.4049
Euro
0.5715
0.5840
0.5702
0.6315
0.5841
Japanese yen
67.48
79.99
74.82
84.14
85.11
Special drawing rights
0.4277
0.4761
0.4694
0.5234
0.5066
Period average(b)
United States dollar
0.5239
0.5847
0.7136
0.7529
0.7474
United Kingdom pound sterling
0.3632
0.3685
0.4102
0.4052
0.4205
Euro
0.5850
0.5577
0.5981
0.5918
0.6143
Japanese yen
66.10
70.01
78.91
80.45
85.90
Special drawing rights
0.4135
0.4313
0.4933
0.5024
0.5147

TRADE-WEIGHTED INDEX OF VALUE OF THE A$(c)

End of period(a)
50.4
54.2
61.4
64.5
62.2
Period average(b)
50.7
53.5
61.5
62.7
63.3

(a) At 30 June.
(b) Exchange rates and the trade-weighted index are provided by the Reserve Bank of Australia in respect of each trading day. Period averages are derived from these rates.
(c) May 1970 = 100.0. The trade-weighted index is reweighted annually and on special occasions as required.
Source: Balance of Payments and International Investment Position, Australia (5302.0).


INTERNATIONAL TRADE IN GOODS AND SERVICES (BALANCE OF PAYMENTS BASIS)

Australia's international trade in goods and services (chain volume measures) for the five years to 2005-06 is shown in tables 30.5 (exports or credits) and 30.6 (imports or debits).

The components of goods shown in tables 30.5 and 30.6 are defined in terms of groupings of items in the United Nations Broad Economic Categories (BEC) for credits, and a modified version of the BEC for debits.

Chain volume measures of exports and imports remove the effects of price changes. They provide measures, in dollar values, which indicate changes in the actual volume of exports and imports.

More detailed information on exports and imports of goods, on a merchandise trade basis without adjustment to a balance of payments basis, and trade in services, is shown later in this chapter.

The chain volume measures of Australia's exports of goods and services increased by $3.1b (2%) between 2004-05 and 2005-06. By contrast, the current price value of those exports, which incorporates both volume and price changes, as shown in the data in table 30.2, increased by $27.8b (17%). This indicates that, on average, the prices of Australia's exports increased more rapidly than their volumes over the period.

The chain volume measures of Australia's imports of goods and services increased by $13.1b (7%) between 2004-05 and 2005-06.


30.5 GOODS AND SERVICES CREDITS, Chain volume measures(a)(b)

2001-02
2002-03
2003-04
2004-05
2005-06
$m
$m
$m
$m
$m

Goods and services credits
159,269
158,041
160,278
164,390
167,522
Goods credits
122,777
122,420
123,968
127,903
130,602
General merchandise
114,619
113,496
115,499
120,050
122,091
Rural goods
27,009
23,557
24,603
25,688
25,219
Meat and meat preparations
6,436
6,510
6,239
6,937
6,780
Cereal grains and cereal preparations
5,174
3,520
4,776
5,159
4,877
Wool and sheepskins
3,067
2,457
2,495
2,837
2,694
Other rural
12,400
11,390
11,112
10,753
10,869
Non-rural goods
87,211
90,081
90,917
94,364
96,872
Metal ores and minerals
16,574
17,519
18,321
19,854
20,619
Coal, coke and briquettes
14,756
15,445
16,279
17,235
17,139
Other mineral fuels
13,586
12,721
11,010
11,151
10,721
Metals (excl. non-monetary gold)
11,463
10,664
9,061
8,668
9,458
Machinery
6,745
6,582
6,739
7,488
7,805
Transport equipment
4,882
5,551
5,131
4,942
5,232
Other manufactures
12,739
13,058
13,825
14,042
14,878
Other non-rural (incl. sugar and beverages)
6,932
8,620
10,454
10,981
11,020
Beverages
1,919
2,301
2,519
2,833
2,940
Sugar, sugar preparations and honey
1,159
1,232
1,232
1,293
605
Other
3,652
4,997
6,758
6,857
3,514
Goods for processing
65
113
103
240
270
Repairs on goods
74
80
78
67
69
Goods procured in ports by carriers
1,164
1,142
990
1,072
1,136
Non-monetary gold
6,752
7,490
7,198
6,473
7,034
Services credits
36,464
35,557
36,244
36,487
36,920

(a) Reference year is 2004-05.
(b) Chain volume measures for years other than 2004-05 and 2005-06 are not additive.
Source: Balance of Payments and International Investment Position, Australia (5302.0).

30.6 GOODS AND SERVICES DEBITS, Chain volume measures(a)(b)

2001-02
2002-03
2003-04
2004-05
2005-06
$m
$m
$m
$m
$m

Goods and services debits
-132,386
-149,662
-168,662
-188,881
-202,001
Goods debits
-103,251
-119,739
-133,655
-150,870
-163,679
General merchandise
-99,721
-115,612
-129,768
-146,837
-158,697
Consumption goods
-32,116
-36,819
-41,841
-47,141
-50,914
Food and beverages, mainly for consumption
-4,497
-4,794
-5,211
-5,767
-5,859
Household electrical items
-2,299
-2,903
-3,441
-4,021
-4,465
Non-industrial transport equipment
-8,944
-10,444
-11,978
-13,003
-13,945
Textiles, clothing and footwear
-3,689
-4,263
-4,883
-5,812
-6,351
Toys, books and leisure goods
-2,748
-3,171
-3,499
-3,739
-4,050
Consumption goods n.e.s.
-10,045
-11,272
-12,839
-14,797
-16,246
Capital goods
-19,846
-25,328
-30,274
-35,960
-41,976
Machinery and industrial equipment
-7,868
-9,751
-10,974
-13,405
-14,423
ADP equipment
-2,493
-3,099
-4,467
-5,762
-7,036
Telecommunications equipment
-2,171
-2,414
-3,449
-4,567
-6,136
Civil aircraft
-1,273
-3,472
-3,073
-2,496
-2,786
Industrial transport equipment n.e.s.
-3,229
-3,548
-4,094
-4,976
-5,593
Capital goods n.e.s.
-3,070
-3,567
-4,336
-4,753
-6,003
Intermediate and other merchandise goods
-48,620
-53,931
-57,832
-63,737
-65,807
Food and beverages, mainly for industry
-624
-658
-634
-659
-638
Primary industrial supplies n.e.s.
-1,055
-1,151
-1,095
-1,052
-1,126
Fuels and lubricants
-11,794
-12,415
-13,021
-14,722
-14,575
Parts for transport equipment
-5,520
-6,194
-6,363
-7,008
-7,230
Parts for ADP equipment
-1,081
-1,280
-1,582
-1,787
-2,152
Other parts for capital goods
-6,135
-6,974
-8,271
-9,490
-10,285
Organic and inorganic chemicals
-3,066
-3,117
-3,223
-3,622
-4,205
Paper and paperboard
-1,713
-1,923
-2,077
-2,314
-2,326
Textile yarn and fabrics
-1,645
-1,731
-1,702
-1,452
-1,340
Iron and steel
-2,130
-2,319
-2,418
-3,008
-3,319
Plastics
-1,897
-2,290
-2,302
-2,428
-2,367
Processed industrial supplies n.e.s.
-11,171
-12,553
-13,830
-15,143
-15,126
Other merchandise goods
-1,274
-1,499
-1,235
-1,054
-1,116
Goods for processing
-42
-72
-65
-242
-304
Repairs on goods
-260
-263
-225
-181
-112
Goods procured in ports by carriers
-940
-936
-910
-1,050
-1,156
Non-monetary gold
-2,367
-2,944
-2,693
-2,558
-3,408
Services debits
-29,279
-29,906
-35,011
-38,011
-38,322

(a) Reference year is 2004-05.
(b) Chain volume measures for years other than 2004-05 and 2005-06 are not additive.
Source: Balance of Payments and International Investment Position, Australia (5302.0).


Table 30.7 presents various price indexes for Australia's trade in goods and services. The implicit price deflators (IPDs) are derived by dividing the current price measures (table 30.2) by the corresponding chain volume measures (tables 30.5 and 30.6). These IPDs reflect not only price change, but also compositional effects from year to year.

Unlike IPDs, chain price indexes measure only the impact of a price change. The chain Laspeyres price index for goods and services credits rose 15.0% in 2005-06. The chain Laspeyres price index for goods and services debits rose 3.7%.

Australia's terms of trade which is a measure of the purchasing power of its exports over imported goods and services (derived by dividing the IPD for credits by the IPD for debits) rose by 11.0% in 2005-06, reflecting a 14.7% rise in the IPD for goods and services credits and a 3.3% rise in the IPD for goods and services debits.


30.7 IMPLICIT PRICE DEFLATORS, Price indexes and terms of trade(a)

2001-02
2002-03
2003-04
2004-05
2005-06

Implicit price deflators(b)
Goods and services credits
97.2
94.7
90.3
100.0
114.7
Goods credits
98.5
94.6
88.3
100.0
117.9
Services credits
92.8
95.3
97.0
100.0
103.5
Goods and services debits
116.8
111.7
99.4
100.0
103.3
Goods debits
118.1
112.1
99.5
100.0
103.7
Services debits
111.5
110.0
99.1
100.0
101.5
Chain Laspeyres price indexes
Goods and services credits
95.9
93.9
89.9
100.0
115.0
Goods credits
96.9
93.6
87.9
100.0
118.2
Services credits
92.6
95.2
96.9
100.0
103.6
Goods and services debits
115.6
111.1
99.2
100.0
103.7
Goods debits
116.7
111.3
99.3
100.0
104.2
Services debits
111.4
110.1
99.1
100.0
101.6
Terms of trade(c)
Goods and services
83.2
84.8
90.8
100.0
111.0
Goods
83.4
84.3
88.8
100.0
113.7
Services
83.2
86.7
98.0
100.0
101.9

(a) Reference year for price and terms of trade indexes is 2004-05.
(b) Derived by dividing the estimates at current prices by the equivalent chain volume measures.
(c) Derived by dividing the IPDs for credits by the IPDs for debits.
Source: Balance of Payments and International Investment Position, Australia (5302.0).


INTERNATIONAL INVESTMENT POSITION

Australia's net international investment position is the difference between the levels of Australia's foreign financial liabilities and the levels of its foreign financial assets. Historically, Australia has had a net liability position with the rest of the world.

Australia's net international investment position at 30 June 2006 was a net foreign financial liability of $540.9b. This was up $37.1b (7.4%) on the position a year earlier and resulted from a net decrease of $24.8b in the level of foreign equity and an increase of $61.9b in the level of foreign debt.

Graph 30.8 shows the components of Australia's international investment position between 30 June 1996 and 30 June 2006. It shows that the increase in net foreign liabilities reflects an increase in net foreign debt liabilities.

30.8 NET INTERNATIONAL INVESTMENT POSITION - 30 June 30.8 NET INTERNATIONAL INVESTMENT POSITION - 30 June


Table 30.9 provides a reconciliation between opening and closing levels for foreign financial assets, foreign financial liabilities and Australia's net international investment position. Increases or decreases in these assets and liabilities are due to financial transactions (investment flows), price changes, exchange rate changes and other adjustments.


30.9 INTERNATIONAL INVESTMENT POSITION

Changes in position reflecting

Position at
beginning
of period
Transactions
Price
changes
Exchange
rate
changes
Other
adjustments
Position at
end of
period
$m
$m
$m
$m
$m
$m

NET INTERNATIONAL INVESTMENT POSITION

Total
2003-04
415,905
44,783
-1,894
-8,295
1,383
451,882
2004-05
451,882
53,517
-5,946
4,285
5
503,744
2005-06
503,744
53,418
-19,841
5,441
-1,893
540,869
Equity
2003-04
58,910
-2,949
7,532
-1,978
-194
61,317
2004-05
61,317
-7,691
-5,459
24,021
-385
71,802
2005-06
71,802
-14,733
-6,333
-4,358
661
47,041
Debt
2003-04
356,995
47,732
-9,425
-6,316
1,579
390,565
2004-05
390,565
61,207
-487
-19,735
391
431,941
2005-06
431,941
68,151
-13,510
9,798
-2,555
493,828

FOREIGN ASSETS(a)

Total
2003-04
-529,797
-46,642
-44,350
-17,372
1,160
-637,003
2004-05
-637,003
40,506
-51,738
15,081
165
-632,991
2005-06
-632,991
-84,023
-68,212
-9,070
-136
-794,434
Equity
2003-04
-304,140
-31,994
-32,697
-1,978
328
-370,483
2004-05
-370,483
44,156
-47,947
24,021
702
-349,551
2005-06
-349,551
-46,274
-54,564
-4,358
-64
-454,811
Debt
2003-04
-225,657
-14,648
-11,654
-15,394
832
-266,521
2004-05
-266,521
-3,650
-3,793
-8,941
-536
-283,440
2005-06
-283,440
-37,749
-13,649
-4,712
-74
-339,623

FOREIGN LIABILITIES(b)

Total
2003-04
945,701
91,426
42,457
9,079
225
1,088,886
2004-05
1,088,886
13,009
45,794
-10,795
-159
1,136,735
2005-06
1,136,735
137,442
48,371
14,511
-1,755
1,335,303
Equity
2003-04
363,050
29,044
40,229
-
-524
431,800
2004-05
431,800
-51,847
42,488
-
-1,086
421,354
2005-06
421,354
31,541
48,231
-
724
501,852
Debt
2003-04
582,651
62,381
2,228
9,079
747
657,086
2004-05
657,086
64,857
3,306
-10,795
927
715,382
2005-06
715,382
105,900
139
14,511
-2,481
833,451

(a) Assets include claims of Australian direct investment enterprises on direct investors abroad, which are classified as part of direct investment in Australia.
(b) Liabilities include liabilities of Australian direct investors to direct investment enterprises abroad, which are classified as part of direct investment abroad.
Source: Balance of Payments and International Investment Position, Australia (5302.0).


FOREIGN DEBT

Foreign debt is a subset of the financial obligations that make up a country's international investment position. It includes all the non-equity components of the net international investment position, that is, all recorded assets and liabilities other than equity securities and direct investment equity capital, including reinvested earnings.

The level of borrowing and other non-equity liabilities of Australian residents at a particular date make up Australia's foreign debt liabilities. The level of Australian lending abroad and other non-equity assets at the same date are deducted from the level of borrowing to arrive at Australia's net foreign debt.

The level of net foreign debt at 30 June 2006 was $493.8b, up $61.9b (14.3%) on 30 June 2005. The increase during 2005-06 resulted from a $118.1b (16.5%) increase in foreign debt liabilities partly offset by an increase of $56.2b (19.8%) in foreign debt assets.

At 30 June 2006 the net foreign debt of the public sector (general government plus public financial and non-financial corporations) was $5.2b, which accounted for 1.0% of total net foreign debt. Net foreign debt levels of private financial corporations and private non-financial corporations were $397.7b (80.5% of total net foreign debt) and $90.9b (18.4%) respectively.


30.10 LEVELS OF FOREIGN DEBT - 30 June

2002
2003
2004
2005
2006
$m
$m
$m
$m
$m

Foreign debt assets(a)
-209,269
-225,657
-266,521
-283,440
-339,623
Public sector
-56,049
-55,337
-66,395
-73,023
-83,034
Private sector
-153,220
-170,320
-200,126
-210,417
-256,589
Foreign debt liabilities(a)
533,416
582,651
657,086
715,382
833,451
Public sector
67,310
63,576
71,470
83,606
88,210
Private sector
466,106
519,075
585,616
631,775
745,240
Net foreign debt
324,147
356,995
390,565
431,941
493,828
Public sector
11,261
8,240
5,075
10,583
5,177
Private sector
312,886
348,755
385,490
421,358
488,651

(a) Foreign debt levels between direct investors and direct investment enterprises are recorded on a gross basis for assets and liabilities.
Source: Balance of Payments and International Investment Position, Australia (5302.0).


LEVELS OF FOREIGN INVESTMENT IN AUSTRALIA AND AUSTRALIAN INVESTMENT ABROAD

In table 30.11, levels of investment are categorised by direction (Australian investment abroad and foreign investment in Australia) and functional category (direct, portfolio, financial derivatives, other and reserve assets).

Direct investment is a category of international investment that reflects the objective of obtaining a lasting interest by a resident in one economy in an enterprise in another economy, and implies a significant degree of influence by the investor in the management of the enterprise. A foreign direct investment relationship is established when an investor, who is a resident in one economy, holds 10% or more of the ordinary shares or voting stock of an enterprise (direct investment enterprise) in another economy. The portfolio investment category covers investment in equity and debt securities other than direct investment, financial derivative assets, other investment assets and reserve assets.

The items 'Australian investment abroad' and 'Foreign investment in Australia' in table 30.11 do not equate with foreign assets and liabilities respectively in table 30.9. The difference is due to netting of assets and liabilities in regard to direct investment, both abroad and in Australia. Debt claims by direct investment enterprises on their direct investors, separately identified in table 30.11, are netted off in that table against liabilities to direct investors. These items are not netted off in table 30.9.

At 30 June 2006 Australian investment abroad totalled $764.9b, up $160.2b (26.5%) on the level a year earlier. This rise was the net effect of a $73.7b increase in direct investment abroad, a $55.8b increase in portfolio investment assets, a $7.0b increase in financial derivative assets, a $16.0b increase in other investment assets and a $7.6b increase in reserve assets.

Foreign investment in Australia totalled $1,305.8b at 30 June 2006, up $197.4b (17.8%) on June 2005. This rise was due to a $19.7b increase in direct investment in Australia, a $159.4b increase in portfolio investment liabilities, a $1.0b decrease in financial derivative liabilities and a $19.3b increase in other investment liabilities.


30.11 LEVELS OF AUSTRALIAN INVESTMENT ABROAD AND FOREIGN INVESTMENT IN AUSTRALIA - 30 June

2002
2003
2004
2005
2006
$m
$m
$m
$m
$m

Levels of Australian investment abroad
-496,182
-502,663
-607,463
-604,661
-764,892
Direct investment abroad(a)
-193,084
-189,590
-231,578
-201,220
-274,920
Portfolio investment assets
-161,069
-160,685
-198,778
-221,698
-277,514
Financial derivative assets
-30,250
-40,735
-42,058
-38,790
-45,819
Other investment assets
-74,345
-70,894
-84,706
-86,784
-102,825
Reserve assets
-37,435
-40,760
-50,342
-56,170
-63,815
Levels of foreign investment in Australia
861,363
918,568
1,059,345
1,108,405
1,305,761
Direct investment in Australia(b)
225,581
252,561
271,825
268,083
287,773
Portfolio investment liabilities
474,766
481,212
609,251
651,843
811,258
Financial derivative liabilities
32,096
45,251
37,683
42,009
40,966
Other investment liabilities
128,920
139,544
140,587
146,470
165,764

(a) Net direct investment abroad, after deduction of liabilities to direct investment enterprises abroad.
(b) Net direct investment in Australia, after deduction of claims of Australian direct investment enterprises on direct investors.
Source: Balance of Payments and International Investment Position, Australia (5302.0).


Ratios

Table 30.12 and graph 30.13 show that the ratio of the current account deficit to gross domestic product (GDP) was 5.8% in 2005-06, a decrease on the previous year.

Graph 30.14 shows the ratio of Australia's net foreign liabilities (Australia's net international investment position) to GDP has risen for most years since 1994 and reached its highest level of 57.2% at 30 June 2006. The ratio of net foreign debt to GDP was 52.2% at 30 June 2006, an increase over the 48.3% recorded the previous year. The ratio of net foreign equity to GDP was 5.0% at 30 June 2006, down on the ratio at 30 June 2005.

Table 30.12 shows the net investment income payable on net foreign debt as a percentage of goods and services credits was 9.5% in 2005-06. The ratio of net investment income payable on equity to goods and services credits was 9.7% in 2005-06, down from 10.0% the previous year.


30.12 RATIOS

2001-02
2002-03
2003-04
2004-05
2005-06
%
%
%
%
%

To Gross domestic product
Current account
-2.6
-5.1
-5.6
-6.4
-5.8
Goods and services
0.0
-2.2
-2.7
-2.7
-1.7
Credits
21.0
19.1
17.3
18.4
20.3
Debits
-21.0
-21.4
-20.0
-21.1
-22.1
Income
-2.7
-2.8
-2.8
-3.6
-4.0
Net international investment position(a)
49.6
53.1
53.9
56.4
57.2
Net foreign equity
5.6
7.5
7.3
8.0
5.0
Net foreign debt
44.1
45.6
46.6
48.3
52.2
To Goods and services credits
Net investment income
-12.5
-14.5
-15.8
-19.4
-19.2
Net income on foreign equity
-3.7
-6.7
-7.2
-10.0
-9.7
Net income on foreign debt
-8.8
-7.8
-8.6
-9.4
-9.5

(a) These ratios are derived by expressing net foreign liabilities at end of year as a percentage of GDP at current prices for that year; for 2005-06, GDP is for the year ended March quarter 2006.
Source: Australian National Accounts: National Income, Expenditure and Product (5206.0); Balance of Payments and International Investment Position, Australia (5302.0).

30.13 RATIO OF BALANCE ON CURRENT ACCOUNT TO GDP 30.13 RATIO OF BALANCE ON CURRENT ACCOUNT TO GDP

30.14 RATIOS OF NET INTERNATIONAL INVESTMENT POSITION TO GDP(a) 30.14 RATIOS OF NET INTERNATIONAL INVESTMENT POSITION TO GDP(a)


FOREIGN OWNERSHIP OF EQUITY IN AUSTRALIA

The total value of equity on issue by Australian enterprise groups at 30 June 2006 stood at $1,859b (table 30.15). Of this total, 63% related to shares or equivalent equity instruments issued by non-financial corporations. Banks accounted for a further 14% of total equity issued, and other financial enterprises, including life offices and superannuation funds (but excluding non-bank deposit taking institutions and the central bank), accounted for 20%. Lesser amounts were issued by non-bank deposit taking institutions (2% of the total) and the central bank (1%).

Of the total equity on issue by Australian enterprise groups at 30 June 2006, non-residents held equity valued at $502b (27%), while residents held $1,357b (73%).

Although the proportion of equity held by non-residents remained relatively stable, the total value of equity on issue increased by 57%, from $1,186b to $1,859b, over the period from 30 June 2002 to 30 June 2006.

Analysed by sector, the value of equity on issue by non-financial corporations rose 53% to $1,172b over the period 30 June 2002 to 30 June 2006, while the proportion held by non-residents decreased slightly from 33% to 31%.

The amount issued by banks increased by 38% between 30 June 2002 to 30 June 2006, while the proportion of non-resident holdings of the total equity issued by banks decreased from 28% to 24% over the same period.

The value of equity issued by other financial enterprises, which includes life offices and superannuation funds, increased by 90% over the period from 30 June 2002 to 30 June 2006, with foreign ownership of this equity falling from 19% to 16% over the same period.


30.15 FOREIGN OWNERSHIP OF EQUITY(a), By sectoral components - 30 June

Units
2002
2003
2004
2005
2006

Non-financial corporations(b)
Amount issued(c)$b
764.8
774.0
931.3
982.9
1,172.0
Amount held by rest of world$b
255.1
275.0
329.9
302.1
364.8
Proportion of foreign ownership%
33.3
35.5
35.4
30.7
31.1
Banks
Amount issued(c)$b
189.9
180.9
189.2
223.5
261.9
Amount held by rest of world$b
53.4
46.8
48.6
55.2
62.8
Proportion of foreign ownership%
28.1
25.9
25.7
24.7
24.0
Non-bank deposit taking institutions
Amount issued(c)$b
25.6
34.2
37.1
39.4
42.2
Amount held by rest of world$b
4.9
7.4
12.5
13.6
14.3
Proportion of foreign ownership%
19.2
21.7
33.6
34.6
33.9
Other financial enterprises(d)
Amount issued(c)$b
194.6
200.5
241.6
295.0
370.6
Amount held by rest of world$b
36.9
33.8
40.9
50.4
60.0
Proportion of foreign ownership%
19.0
16.9
16.9
17.1
16.2
Central Bank
Amount issued(e)(f)$b
11.4
11.7
12.5
11.2
12.7
Total amount issued$b
1,186.4
1,201.3
1,411.8
1,552.0
1,859.3
Total amount held by rest of world$b
350.3
363.1
431.8
421.4
501.9
Proportion of foreign ownership%
29.5
30.2
30.6
27.1
27.0

(a) Equity includes units in trusts.
(b) Includes private non-financial corporations, and Commonwealth, state and local public non-financial corporations.
(c) These estimated market values are considered to be of poor quality. They should be used cautiously.
(d) Includes life offices and superannuation funds, central borrowing authorities, and other financial enterprises.
(e) Net asset values.
(f) There is no foreign ownership in this component.
Source: Australian National Accounts: Financial Accounts (5232.0); Balance of Payments and International Investment Position, Australia (5302.0).


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